In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

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Tag: friedrich hayek

Today is the 115th anniversary of the birth of F. A. Hayek, who honored the Cato Institute by serving as a Distinguished Senior Fellow, and in whose honor the Institute’s F. A. Hayek Auditorium is named. “It is hardly an exaggeration to refer to the twentieth century as the Hayek century,” John Cassidy wrote in the New Yorker. If we’re lucky, the 21st century will also be a Hayek century.

Hayek spoke at Cato several times. Before his 1982 Distinguished Lecture, he sat down for an interview with Cato Policy Report. Here’s another interview by our late board member Jim Blanchard that appeared in Cato Policy Report. Senior fellows Tom Palmer and Gerald O’Driscoll have offered appreciations of his work. O’Driscoll more recently applied Hayek’s business cycle theory to the 2008 financial crisis.

Cato adjunct scholar Ilya Somin ponders Hayek’s continuing relevance in this essay from just before the crisis announced itself last fall. Somin notes that Hayek’s critique of socialism gets most attention from scholars, but his critique of conservatism is also worth pondering.

In 2011, on the occasion of the publication of a definitive edition of Hayek’s great book The Constitution of Liberty, his work was discussed in the Hayek Auditorium by Ronald Hamowy, Bruce Caldwell, Richard Epstein, and George Soros. I discussed that event, with a link to the video and transcript, here, concluding

As the world suffers from the aftereffects of another Federal Reserve-created bubble, it’s a good time to reread Hayek on the boom-and-bust cycle. But it’s also a good day to reflect that Hayek lived just long enough to see the demise of the totalitarian socialist system that he spent his life analyzing and criticizing. The world is freer today, partly because of Hayek’s great work.

Foreign airlines have begun to restrict ticket sales in Venezuela. As the bolivars’ value evaporates, and with exchange controls in force, the airlines fear that the funds they have in Caracas will evaporate, too. By restricting ticket sales, the airlines will limit the amount of new money that is trapped behind the government’s wall of exchange controls.

Of course, President Nicolas Maduro isn’t the first autocrat to impose exchange controls, and he won’t be the last to impose these confiscatory policies. Indeed, the pedigree of exchange controls can be traced back to Plato, the father of statism. Inspired by Lycurgus of Sparta, Plato embraced the idea of an inconvertible currency as a means to preserve the autonomy of the state from outside interference.

So, the temptation to turn to exchange controls in the face of disruptions caused by hot money flows is hardly new. Tsar Nicholas II first pioneered limitations on convertibility in modern times, ordering the State Bank of Russia to introduce, in 1905–06, a limited form of exchange control to discourage speculative purchases of foreign exchange. The bank did so by refusing to sell foreign exchange, except where it could be shown that it was required to buy imported goods. Otherwise, foreign exchange was limited to 50,000 German marks per person. The Tsar’s rationale for exchange controls was that of limiting hot money flows, so that foreign reserves and the exchange rate could be maintained. The more things change, the more they remain the same.

This brings me to Nobel laureate Friedrich Hayek’s 1944 classic, The Road to Serfdom. Many thought Prof. Hayek hurt his case because he was extreme. What nonsense. Just consider the Wall Street Journal’s reportage from Caracas about the real concerns of foreign airlines that have funds locked up in Venezuela. And then reflect on the following insightful analysis from the Road to Serfdom:

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

Hayek’s message about convertibility has regrettably either been overlooked, or thought to be too extreme. Exchange controls are nothing more than a ring fence within which governments can expropriate their subjects’ property. Open exchange and capital markets, in fact, protect the individual from exactions, because governments must reckon with the possibility of capital flight.

In a democratic society, there will always be tension over which decisions should be made by expert appointees, and which by those with the legitimacy and accountability that come with competing for citizens’ votes. The technocrats can make complex decisions quickly, quietly and efficiently. The words “quick, “quiet” and “efficient” are rarely applied to the U.S. Senate or the Italian Parliament — but these institutions are imbued with an authority that comes directly from the people, the explicit consent of the governed.

So, in a crisis, which do you want: unaccountable decisiveness or inefficient accountability?

Consciously or not, we’ve made our choice: The financial crisis and its long, ugly aftermath have marked the triumph of the technocrats…

None of this is a great way to run a society. Like most journalists, I believe in transparency and accountability. I wish the Federal Reserve’s policy meetings were broadcast on C-SPAN. Instead, we get written transcripts five years later. (That still beats Europe, where such information is under lock and key for 30 years.)

Yet, when the world is on the brink, decisive problem-solving trumps the niceties of democratic process. I won’t like it much — but I’ll take it.

Authoritarianism cannot take hold without intellectual support, and Friedrich Hayek couldn’t have described the rationale better himself. Just equally well. Almost verbatim, actually.

Reason magazine has a characteristically excellent video about the gas shortages in New York and New Jersey. Which is to say, the video is really about the insane responses of officials in those states to the scarcity of gas. Reason’s Jim Epstein writes: “Govs. Chris Christie and Andrew Cuomo…threatened to prosecute any station owners caught raising prices, thus removing any incentive to truck more gas in from other parts of the country.” Here’s the video:

New Jersey Gov. Chris Christie ordered…drivers with even-numbered license plates being allowed to fill up on even-numbered dates and odd-numbered cars on the other days. But several motorists said they hadn’t heard the news because they had no power at home, and gas station managers said they didn’t bother to look at the plates.

“I don’t have any time to check plates,” David Singh said as he pumped gas into a car at the Delta station he manages on McCarter Highway in Newark.

So not everyone heard about the government’s rationing scheme, and even fewer people cared. You know what conveys information a lot better than tired government edicts? Market prices.

Fortunately, market prices are still breaking through:

Shauron Sears, 37, a waitress, said she spent 12 hours vainly waiting for gas on Friday and another hour waiting Saturday at a Sunoco station on McCarter Highway. Just as she got to the front of the line, a manager started waving his arms and shouting, “No more gas!”

Sears said…since her house flooded she and her family have been camping at her sister’s house in Orange, N.J. Nine people are in the house, including a baby, and Sears is eager to return to her own home. But her first priority is to get gas.

“There are people who are buying gas and selling it for $8 a gallon,” she said. “Maybe I can buy some from them.”

Donald Berwick may have mastered the science of health care management and delivery. (I for one would jump at the chance to enroll my family in the Berwick Health Plan.) But his recent oped in the Washington Post shows he has yet to absorb the lessons that economics teaches about government planning of the economy, such as through ObamaCare.

Berwick, whom President Obama recess-appointed to be administrator of the Centers for Medicare & Medicaid Services (CMS), sets out to defend ObamaCare from a fairly devastating critique by Robert Samuelson a few days earlier. Berwick responds, in essence, nuh-uh:

I saw how this law is helping tens of millions of families and is finally putting our health-care system on the right track…I have seen how improving care can reduce costs dramatically.

Berwick fails to see the world of difference between those two statements. Yes, in his private-sector work, Berwick has helped hospitals save more lives, kill fewer people, and save money in the process. I’m pretty sure he has saved more lives than I ever will.

But all he saw from his perch at Medicare’s helm was people happy to receive checks from the government, and a bunch of well-meaning bureaucrats setting goals. He did not see the costs imposed by those subsidies. As for goal-setting, this one sentence captures it all:

The CMS, for example, has set ambitious goals to reduce complications that, if met, would save 60,000 lives and $35 billion in just three years.

If. Met. A recent Congressional Budget Office review of Medicare pilot programs showed that Medicare bureaucrats set goals all the time. They never achieve them.

Berwick’s claim that ObamaCare “cracks down hard on waste and fraud” because “Last year the government recaptured a record $4 billion” is even more ridiculous. The official (read: low-ball) estimates are that CMS loses $70 billion per year to fraud and improper payments. The best evidence suggests that wasteful spending approaches $200 billion per year in Medicare alone. All that money that comes from you, John Q. Taxpayer. Berwick knows all these things. Yet he thinks you should be impressed that recovering a measly $4 billion is the best the government has ever done.

Berwick would never tolerate such willful blindness, shoddy reasoning, and (surprise!) poor results if it were his own money on the line. Which is exactly the point. In a free market, people spend their own money. At Medicare, Berwick spent, and ObamaCare continues to spend, other people’s money.

That is the main reason why markets are smart and government is stupid. And why otherwise smart people like Berwick can afford to keep their eyes shut.

Today, National Review Online publishes our op-ed based on that study. An excerpt:

[U]nder the statute as written, if Congress fails to repeal IPAB in 2017, the secretary must implement IPAB’s edicts even if Congress votes to block them. Nancy Pelosi was right: We needed to pass ObamaCare to find out what was in it. We’re still finding out.

ObamaCare is so unconstitutional, it’s absurd. It delegates legislative powers that Congress cannot delegate. It creates a permanent super-legislature to supplement—and when conflicts arise, to supplant—Congress. It tries to amend the Constitution via statute rather than the amendment procedure of Article V.

ObamaCare proves economist Friedrich Hayek’s axiom that government direction of the economy threatens both democracy and freedom. After decades of failing to deliver high-quality, low-cost health care through Medicare, Congress struck upon the “solution” of creating a permanent super-legislature—or worse, an economic dictator—with the power to impose taxes and other laws that the people would reject.

Fortunately, one Congress cannot bind future Congresses by statute. If the Supreme Court fails to strike down ObamaCare, Congress should exercise its power to repeal IPAB—and the rest of ObamaCare with it.

Cohen is also the lead attorney for the plaintiffs in Coons v. Geithner, which challenges the constitutionality of IPAB and which a federal court has put on hold pending the Supreme Court’s ruling in the individual-mandate and Medicaid-mandate cases.

When the unelected government officials on this board submit a legislative proposal to Congress, it automatically becomes law: PPACA requires the Secretary of Health and Human Services to implement it. Blocking an IPAB “proposal” requires at a minimum that the House and the Senate and the president agree on a substitute. The Board’s edicts therefore can become law without congressional action, congressional approval, meaningful congressional oversight, or being subject to a presidential veto. Citizens will have no power to challenge IPAB’s edicts in court.

Worse, PPACA forbids Congress from repealing IPAB outside of a seven-month window in the year 2017, and even then requires a three-fifths majority in both chambers…

IPAB’s unelected members will have effectively unfettered power to impose taxes and ration care for all Americans, whether the government pays their medical bills or not. In some circumstances, just one political party or even one individual would have full command of IPAB’s lawmaking powers. IPAB truly is independent, but in the worst sense of the word. It wields power independent of Congress, independent of the president, independent of the judiciary, and independent of the will of the people.

The creation of IPAB is an admission that the federal government’s efforts to plan America’s health care sector have failed. It is proof of the axiom that government control of the economy threatens democracy.

Importantly, this study reveals a heretofore unreported feature that makes this super-legislature even more authoritarian and unconstitutional:

The Congressional Research Service and others have reported that even if Congress fails to repeal this super-legislature in 2017, Congress will still be able to use the weak tools that ObamaCare allows for restraining IPAB. Unfortunately, that interpretation rests on a misreading of a crucial part of the law. These experts thought they saw the word “or” where the statute actually says “and.”

How much difference can one little conjunction make?

Under the statute as written, if Congress fails to repeal IPAB in 2017, then as of 2020 Congress will have absolutely zero ability to block or amend the laws that IPAB writes, and zero power to affect the Secretary’s implementation of those laws. IPAB will become a permanent super-legislature, with the Secretary as its executive. And if the president fails to appoint any IPAB members, the Secretary will unilaterally wield all of IPAB’s legislative and executive powers, including the power to appropriate funds for her own department. It’s completely nutty, yet completely consistent with the desire of ObamaCare’s authors to protect IPAB from congressional interference.

It’s also completely consistent with Friedrich Hayek’s prediction that government planning of the economy paves the way for authoritarianism.